August 2, 2022
Senate To Vote On Inflation Act This Week, Schumer Says - Asha Glover, Law360 Tax Authority ($):
The New York Democrat said lawmakers in both parties are having conversations with the Senate parliamentarian that he hopes will result in the legislation being tacked on to the fiscal year 2022 budget reconciliation bill. Lawmakers are battling to see which provisions of the proposal will meet the strict rules of what can be included in budget reconciliation legislation.
The big question: will Arizona Senator Sinema go along?
West Virginia Democrat Joe Manchin, speaking on CNN's "State of the Union" on Sunday, said Democratic leaders want to pass the package before the Senate breaks for the August recess. He said he hopes the bill will win the vote of Arizona Sen. Kyrsten Sinema, a Democrat whom — like Manchin — Senate leaders have had a difficult time wrangling support from.
Democratic anxiety grows over Sinema’s silence - Alexander Bolton and Amie Parnes, The Hill:
Democratic lawmakers are privately worried that Sinema’s not happy about being left out of the negotiations between Senate Majority Leader Charles Schumer (D-N.Y.) and centrist Sen. Joe Manchin (D-W.Va.), which resulted in a surprise announcement last week of a major deal.
Manchin acknowledged to reporters Monday that Sinema was left out of last week’s quiet negotiations with Schumer, even though she had played a key role in talks with the White House last year.
The bill will fail without Senator Sinema's support. Taking her for granted was, um, bold.
Manchin Touts Democrats’ Climate and Tax Bill, Which Draws GOP Criticism - Siobhan Hughes and Timothy Puko, Wall Street Journal ($): "Ms. Sinema is reviewing the bill and hasn’t said how she would vote. She left a Senate vote Monday without responding to a question about whether she supported the package."
Tax Pros Flag Flaws in Carried Interest Proposal - Kristen Parillo, Tax Notes ($):
This change would sweep in section 1231 gains, qualified dividend income, and section 1256 gains, which are currently exempt from section 1061’s scope. Some tax professionals believed that the exception for section 1231 was the unintended result of a drafting error.
The legislation would mandate gain recognition for any transfers of carried interest, regardless of whether the transfer would otherwise be eligible for nonrecognition treatment. This would replace a narrower rule under section 1061(d) that applies to transfers to related persons.
One of the problems with passing legislation through reconciliation this year is a Senate rule that there will be no committee hearings where drafting blunders can be pointed out and maybe corrected. Everything gets drafted by a few staffers with no input from taxpayers or practitioners, and with little chance to fix anything.
Carried Interest Provision Seen as Harmful to Charitable Giving - Fred Stokeld, Tax Notes ($). "The provision also says that if a taxpayer transfers an applicable partnership interest in any transaction — including a transaction that would otherwise be nontaxable — 'that taxpayer would have to recognize and pay tax on the difference between the value of the applicable partnership interest and his adjusted basis in the same,' Philanthropy Roundtable explained in a background paper."
Expensing and loopholes: Gaming out what's next for the Democrats' tax plans - Bernie Becker, Politico:
The new minimum tax would hit corporations that averaged $1 billion in profits on their financial statements over a three-year period. Under financial accounting, companies write off capital investments basically for as long as they’re expected to last.
That’s quite different than how tax accounting treats capital expenditures, where both Democrats and Republicans have worked to allow for quicker write-offs because they believe it gives a spark to the economy.
The minimum tax on financial statement income would apply to corporations with income over $1 billion - a small fraction of corporations, but a larger fraction of the economy.
A Tale of Two Min Taxes - Alex Parker, Things of Caesar:
The IRA book tax instead uses book accounting, with the premise that this is somehow “truer,” or at least less susceptible to downward manipulation, than taxable income. It’s a common refrain in public rhetoric on taxes–that companies paid 0% in taxes on $X of profit, implying that 0 is the wrong figure but X isn’t. After all, X is what the company reported to its own shareholders.
In some cases it’s undoubtedly true that the discrepancy is due to manipulation. In other cases, it’s an apples to oranges comparison–like complaining that a driver is going 70 kilometers per hour in a 50 mile-per-hour zone. Book accounting often uses different timing to measure costs, creating apparently wide divergences in profitability which even out over time.
"IRA" is the Inflation Reduction Act, the current version of "Build Back Better."
The Minimum Book Tax Is Not a ‘second Best’ Reform - Kyle Pomerleau, AEI. "The largest revenue raiser in the House version of the bill is a 15% minimum tax on large corporations’ book income. The minimum tax is being pursued after lawmakers dropped the proposal to raise the corporate income tax rate. Some proponents have likened the book tax to a 'broaden-the-base, lower-the-rate' reform, which reduces distortions by eliminating or scaling back deductions in the tax base. This argument, however, is based on a misunderstanding of how the book tax would impact incentives. The tax can easily increase distortions for some corporations rather than reduce them."
Amgen Fights IRS Over $10.7 Billion Tax Bill - Joseph Walker and Richard Rubin, Wall Street Journal ($). "The IRS says that Amgen underreported its taxable income by nearly $24 billion from 2010 to 2015 by inappropriately attributing what the agency says should have been U.S. profits to a Puerto Rico subsidiary that oversees manufacturing of the company’s drugs."
IRS Changes Guidelines for Inherited IRAs, Causing Confusion and Pushback - Ashlea Ebeling, Wall Street Journal ($). "Taxpayers can deal with the new law and guidance by calculating the necessary amount each year. Or, they can cash out in the first year and pay one tax bill. Taxpayers who fail to take a required distribution are hit with a tax penalty that is equal to half the amount that should have been taken out."
IRS Admits ‘Systemic’ Problem Led It To Send Erroneous Unpaid Tax Notices To Married Couples - Amber Gray-Fenner, Forbes. "Yesterday the IRS issued a statement acknowledging that 'some payments made for 2021 tax returns have not been correctly applied to joint taxpayer accounts, and these taxpayers are receiving erroneous balance due notices (CP-14 notices) or notices showing the incorrect amount.'"
4 tax moves to make this August - Kay Bell, Don't Mess With Taxes. "4. Adjust withholding to avoid filing time surprises: If you're not prepared added extra job income, be it from a summer gig or year-round weekend/night side work, you could face a big tax bill — and potential penalties for underwithholding — at filing time. A review of your personal and earnings situations now can help you avoid that."
IRS Issues Updated Security Warnings to Tax Professionals - Ed Zollars, Current Federal Tax Developments. "In the past, criminals have used ransomware attacks to shut down a variety of companies. Criminals can use similar, smaller scale tactics against tax pros. When the unsuspecting tax professional opens a link or attachment, malware attacks the tax pro’s computer system to encrypt files and the thieves hold the data for ransom."
Is a C Corporation a Good Entity Choice For the Farm or Ranch Business? - Roger McEowen, Agricultural Law and Taxation Blog. "If an organizational structure is initially being put into place, again there are numerous factors to consider in determining whether the farming or ranching business should operate as a C corporation or a pass-through entity."
New Inflation Adjustments Proposed for Some Tax Rules - Annette Nellen, 21st Century Taxation. "There are numerous dollar amounts in the federal tax law that are not adjusted for inflation, such as the $3,000 capital loss limitation and the $200K and $250K thresholds for the net investment income tax (NIIT)."
Income, an Origin Story - TL Fahring, Freeman Law. "Macomber introduced the realization requirement to the federal income tax, and the decision continues to be cited in such contexts as cryptocurrency hard forks and the constitutionality of provisions denying deductions for cannabis businesses."
Winner Of $1.28 Billion Lottery Gets $433.7 Million After Tax - Robert Wood, Forbes. Largely because the $1.28 billion is the prize for an annuity. If the winner takes the cash up front, the prize is "only" 747.2 million. From the article:
Yet like most things, even that lower cash figure gets whittled down by the IRS. In fact, lottery winnings are taxed, with the IRS taking up to 37%. Curiously, though, only 24% is withheld and sent directly to the government. The winning cash prize of $747,200,000 after the 24% IRS withholding tax, drops to $567,872,000. But the winner shouldn’t spend all that. After all, the federal income tax rate goes up to 37%, and you can assume that the winner is in the top 37% bracket.
2022 Sales Tax Holidays: Bad Policy Any Year, But Especially in Response to High Inflation - Janelle Fritts, Tax Policy Blog. "Most sales tax holidays involve politicians picking products and industries to favor with exemptions, arbitrarily discriminating among products and across time, and distorting consumer decisions."
2022 2nd Quarter Published Expatriates - International Tax Blog. "The number of published expatriates for the quarter was 1,474."
Cryptocurrency Is Primarily An Investment, Not Money. It Should Be Taxed That Way - Howard Gleckman, TaxVox:
Toomey and Sinema want the IRS to treat crypto as money—at least sometimes. Their argument: You don’t pay tax when you withdraw cash from an ATM to buy that dinner. Why should you pay tax when you use crypto?
Well, because most crypto isn’t money. It is an investment, and a highly speculative one at that. Here is a two-year historical price chart for Bitcoin, one of the most stable crypto currencies.
Related: New Tax Guidance Issued on Cryptocurrency Transactions
Best Tax News Of The Year - Aegis For Dreams Wins Tax Exempt Status - Peter Reilly, Forbes. "US Tax Court Chief Judge Kathleen Kerrigan's order and decision recognizing Aegis For Dreams Foundation as a 501(c)(3) organization effective July 2, 2022, is the best tax news I have heard this year. Matthew Ryan, currently the foundation's sole trustee, has the idea of raising at least $30 million to make a highly accurate film about the relationship between George Washington and Alexander Hamilton during the American Revolution."
Spanish Prosecutors to Seek 98-Month Prison Term for Shakira - William Hoke, Tax Notes:
Spanish prosecutors told a Barcelona court they will seek a 98-month prison term and a hefty fine if Colombian pop singer Shakira Mebarak is found guilty of tax evasion.
In 2018 prosecutors indicted the singer, who is known by her first name, for tax fraud, alleging that she claimed to be a resident of the Bahamas when she was actually residing in Spain from 2012 through 2014. On July 27 Shakira’s lawyers rejected a plea deal offered by prosecutors that would have let her avoid trial on charges of evading €14.5 million in taxes. The deal reportedly would have required Shakira to plead guilty to tax fraud in exchange for a prison sentence of no more than two years. Under Spanish law, first-time offenders normally receive probation for sentences of shorter durations.
Not very hip.
Lunch time. It's National Ice Cream Sandwich Day!
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.